Ship financing in 'troubled waters,' banker says

Wednesday, February 20, 2013

Financing of shipping in Germany has “sailed into troubled waters,” one of the country's leading bankers said this week.
Andreas Dombret, member of the executive board at Deutsche Bundesbank, said in a speech in Hamburg on Monday that “the financing of shipping undoubtedly represents a substantial regional and sectoral risk in the banking industry. In mid-2012, loans issued by the major credit providers amounted to just over 100 billion euros ($134 billion)."
Dombret noted difficulties experienced in international ocean shipping have “hit Hamburg doubly hard,” as it's home to more than 120 shipping companies and “financial services linked to shipping play a prominent role in the city’s financial center.”
Shipping faces what he called a “deep-rooted crisis” because of an “abrupt end to growth in trading volumes and transport revenues and plummeting freight rates."
He said charter rates for containerships have declined sharply since 2007.
"The virtually unchecked rise in capacity further complicates the situation because against the backdrop of cheaply available finance and optimistic expectations the order books of shipyards across the world have become full," Dombret said."Further pressure comes from the fact that, on the grounds of cost, increasingly larger ships are being ordered while smaller ships are gradually being scrapped.
“Up until now, robust economic activity has helped the German banking system to cope with the pressures from problem business areas such as the financing of shipping,” he said, but added “it would be wrong to yield now to the temptation presented by the current low-interest rate environment to postpone cleaning up the balance sheets.”
Anastasios Margaronis, president of Diana Containerships, said in a telephone call with analysts on Tuesday, "the banking sector which has had a profound effect on developments in the containership industry during the last three years or so."
He said Germany's Federal Financial Supervisory Authority announced it would "give the shipping loan portfolios of German banks some special attention when checking their balance sheets.
"An article in the New York Times last December may have stirred up things by reporting that according to Moody’s, Germany’s 10 largest banks have $128 billion in outstanding credit related to the global shipping industry," he said, noting "that is more than double the value of their holdings of government debt from Greece, Ireland, Italy, Portugal and Spain put together. It is also more than any other nation’s financial exposure to the shipping industry, yet the German taxpayers have hardly noticed where a significant part of their savings has been invested by their bankers.
"It remains to be seen now what effect this scrutiny by the regulators will have on the asset values of containerships which form a large part of the German bank shipping loan portfolio," Margaronis said. - Chris Dupin